1H24 results are in line with our expectations

The company's 1H24 net profit/operating revenue/profit before provision was -0.9%/-0.7%/-2.9% year-on-year, in line with our expectations.

Development trends

The growth rate of revenue and profit has rebounded. The year-on-year growth rate of 1H24's operating income/profit before provision was +2.3% ppt/+1.9ppt compared to the first quarter, respectively. See: 1) Net interest income fell 3.1% year on year, and the decline narrowed by 0.8ppt from the end of the first quarter, mainly due to interest spreads flat from the first quarter and a slight slowdown in asset growth; 2) Net fee revenue fell 7.6% year on year, and continued to decline 3ppt from the first quarter, mainly due to a decline in agency business, credit card and escrow business revenue; 3) Other non-interest revenue increased 22.2% year over year This is an increase of 18.4ppt from the first quarter, mainly due to an increase in precious metals sales revenue and a decrease in revenue losses due to changes in fair value. Furthermore, asset impairment losses in the second quarter fell 6.8% year on year, down 12.5ppt from the first quarter to feed back net profit.

Optimization of the credit structure. 1H24 corporate credit/total assets increased 9.7%/9.1% year-on-year respectively, down 2.6ppt from the first quarter. In terms of key areas, green loans/private enterprise loans/manufacturing loans increased by 17.8%/9.4%/9.6% compared to the end of 2023, and the growth rate was higher than total credit.

Interest spreads remained flat month-on-month. 1H24's net interest spread was 1.44%, down 15 bps from 2023, and was the same as in the first quarter. Based on the initial balance calculation, the yield on interest-bearing assets in a single quarter was 3.27%, down 9 bps from the first quarter. The decline may be mainly due to the fact that demand in the real economy is still weak; the cost ratio of interest-paying debt in a single quarter was 2.09%, down 9 bps from the first quarter. The decline in debt costs may have benefited from the drop in high-interest deposit pressure and the effectiveness of manual interest compensation clean-up. The company's deposits increased 5.3% year-on-year in the first half of the year, down 4.7ppt from 10% at the end of the first quarter.

The capital level is stable, and the medium-term dividend ratio is about 30%. 1H24's core Tier 1 capital adequacy ratio was 12.03%, continuing to rise 1 bps from the end of the first quarter, and the capital level remained stable. The company announced that it plans to distribute mid-term dividends. The distribution period for A shares and H shares is about January 2025 and February 2025. Each share will be distributed with a cash dividend of 0.1208 yuan. The corresponding cash dividend ratio is 30%, and the dividend level remains stable. Based on the annualized calculation of mid-term dividends, the dividend ratio of the company's A shares and H shares is about 5%/7% respectively, and there is still investment value from a dividend perspective. (continued on next page)

Profit forecasting and valuation

Keep profit forecasts unchanged. The current A share price corresponds to 2024/2025 0.6x/0.6x P/B, and the H share price corresponds to 2024/2025 0.4x/0.3x P/B. Maintain A shares outperform the industry rating and target price of $5.64, corresponding to 0.7x/0.6x P/B in 2024/2025, with 14.9% upside compared to the current share price; maintain H shares outperform the industry rating and target price of HK$3.90, corresponding to 0.4x/0.4x P/B in 2024/2025, with 10.3% upside compared to the current stock price.

risks

Domestic and foreign macroeconomic uncertainty; real estate and local financing platform risks.